Onward and upward in the new South Africa

Financial planning in South Africa has a history as long as financial planning in Australia — and despite the country’s political problems, business is booming. In the fourth and final part of our Financial Planning Around the World series, Kate Kachor examines the South African industry.

South Africa today plays hosts to an official population of 40 million. Unofficial estimates - which take into account an extra four to eight million illegal aliens - put the figure closer to 48 million.

And yet, according to South African financial planner Justin Hooper, only two million South Africans have direct contact with a financial planner while another four or five million have some indirect contact.

The poor numbers, he says, reflect the fact that most people in South Africa are comparatively poor.

"The majority of the South African population don't have the basics," he says.

"They don't have a house, they don't have private health care, so there is no need for financial advice."

Hooper entered the financial planning industry a few years after leaving university, in his twenties. In 1982, he established Fincorp in Johannesburg, South Africa's first fee-only financial planning practice.

His aim was to provide a 'pure' financial planning service. At first Hooper began offering his clients tax compliance work, buying and selling shares and providing insurance advice, before moving into financial planning advice in 1984.

His clients were a combination of retirees and wealth accumulators, mainly executives and their families.

"After I finished university I joined the airforce and played cricket for a year and then I started Fincorp," he says. "I just sort of stumbled across it. Whilst in the airforce I realised that there were a lot of young professionals who didn't know where to turn to for financial advice. It was a big opportunity. The practice that I started up was about as pure as you get in financial planning. We went to the extreme for our clients - which could have been more profitable to ourselves

as shareholders.

"We also disclosed our three year strategies to our clients in order to give them a feeling of participation in our long term success," Hooper says.

However, not all financial planning companies in South Africa operate according to the Fincorp model. Hooper says some companies offer relatively simple products to satisfy cultural needs like funeral insurance, while others offer extremely sophisticated private banking services.

Many practices "link" with superannuation administrators, giving planners access to key information about the forthcoming retirement or redundancies of members.

In 1999, when Fincorp had grown its funds under management/administration to $A500 million dollars servicing 600 clients South Africa wide, Hooper left his practice and his family and friends for the security of Australia, where he is now working with Ipac Securities as manager of financial planning.

"My decision to leave was based on many issues," he says. "The probability of being exposed to violent crime, the desire to live in a first world technological country, and the desire to live in a western culture."

Hooper says the country's political uncertainty means people in South Africa tend to think short term about investments.

"In South Africa a financial planner's emphasis is short term. Even wealthy people's horizons are short term. If you go and talk to them about 10 to 15 years down the track they are not prepared to think that far."

The political uncertainty also means people in South Africa are very interested in offshore investments.

"People want to hold some of their money offshore in order to alleviate both the currency and country risks," he says.

Financial planning in South Africa was born out of a very strong life insurance industry, but the relationship hindered rather than helped the growth of financial planning, according to Hooper.

"I think the relative strength of the life industry had a negative impact on the development of a financial planning industry," he says. Since its break from life insurance in 1985, Hooper says South Africa's financial planning industry has grown with remarkable speed.

"The market in South Africa is definitely growing rapidly from a funds inflow and also from the advancement in the financial planning industry itself," he says.

"The driving forces behind the industry in South Africa are pretty much the same forces driving the industry here in Australia. The huge need for international exposure is another major driver."

Despite the growth in the industry, financial planners are still pretty thin on the ground in South Africa. Hooper estimates that there are between 1200 and 2000 authorised planners in the country. While the certified financial planner (CFP) brand exists, it is not as well-recognised nor as difficult to get as the Australian qualification, according to Hooper.

"South African CFPs are, in my opinion, not as well-qualified as the CFPs in Australia," he says.

Aspiring CFPs in South Africa must sit a series of examinations. They may then apply for membership of the country's professional association, the Financial Planning Institute of South Africa (FPI). To obtain entry for professional membership, candidates must be at least 21 years old, have one year's practical experience in financial planning and agree to abide by the FPI's Code of Conduct and Generally Accepted Planning Practice (GAPP).

Once accepted for professional membership, a candidate becomes a fellow of the FPI and is licensed as a CFP.

Hooper completed the (Australian) diploma of financial planning long distance from South Africa, and has qualified as a CFP in both countries.

He believes one of the challenges still facing the industry in South Africa is implementation and enforcement of industry legislation. To be successful at that, he says the FPI needs more funding.

"The FPI hasn't got massive funding and as a result it hasn't got a very strong inspectorate," he says.

"The Financial Services Board (FSB) which is the inspectorate of the state, doesn't really have any teeth. The FSB should probably introduce licensing fees to provide funding for that purpose."

Despite the country's problems, Hooper believes financial planning in South Africa is still a good place for up and coming financial planning graduates.

"A young finance graduate who wanted to get into merchant banking would be exposed to more complex issues in South Africa than in most other countries," he says.

"There are no perfect places in the world but one needs to select the country most appropriate for one's personal circumstances. In many cases, South Africa may be the one."